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May 26, 2024
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Hedge Funds

Citadel Joins Hedge Fund Peers Cutting Back Trading on Index Changes

(Bloomberg) — Citadel has dialed back its index rebalance strategy, joining a string of hedge fund peers who are curtailing what once used to be one of the most reliable trades but one that’s turned challenging in recent years.

The $56 billion investment firm has cut its dedicated team specializing in the trade, according to people with knowledge of the matter. Nina Zhao left the company in recent months, while Ryan Sandor and Paul Jefferys departed earlier in 2023, the people said, asking not to be identified because the details are private. 

A spokesman for Citadel declined to comment. Zhao could not be reached for comment. Sandor and Jefferys didn’t immediately respond to messages seeking comment. 

The index rebalance strategy, in its simplest form involves, for example, buying stocks that are entering major stock indexes and selling those that are exiting them ahead of time. But with everyone from Millennium Management and Man Group to traditional money managers getting in, it’s been facing diminishing returns. 

Read More: Sure-Fire Trade Exploiting Dumb Index Cash Crushed by Crowding

A number of traders pursuing the strategy suffered one of their toughest years in 2022, following which a retrenchment at major investment firms started.

ExodusPoint Capital Management, which focuses overall on fixed income, scaled back the strategy, Bloomberg News reported last year. Some managers specializing in the trade at firms including Point72 Asset Management, Millennium and Balyasny Asset Management also departed.

At Citadel, the strategy still operates with a small allocation as part of the firm’s equities business and is overseen by quant researchers, one of the people said. 

Citadel posted a 15.3% return in its main Wellington hedge fund last year.

©2024 Bloomberg L.P.

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